Gryphon Gold Reports $3.2 Million in Revenue for the Third Quarter of Fiscal 2013
The Company Entered Into a Joint Venture Agreement With Waterton Global Value L.P. to Strengthen Capital Structure and Continue Advancement of Borealis PropertyCARSON CITY, 02/14/13 - Gryphon Gold Corporation (the "Company" or "Gryphon Gold") (TSX: GGN)(OTCQB: GYPH), a gold exploration, development and production company focused on its Borealis Oxide Heap Leach Project in Nevada (the "Borealis Property"), reported financial results for its third quarter of fiscal 2013, which ended December 31, 2012.
The Company reported revenue of $3.2 million in the third quarter of fiscal 2013 on sales of 1,904 gold equivalent ounces, compared with revenue of $0.9 million in the third quarter of fiscal 2012. Revenue in the trailing second quarter was $3.5 million on sales of 2,262 gold equivalent ounces.
During the third quarter, approximately 196,585 tons of ore was placed on the heap leach pad compared with 261,730 tons in the trailing second quarter. The Company produced 1,942 gold equivalent ounces in the quarter at a recovery rate of approximately 40% with an average cash cost per ounce of $1,292. For the first nine months of fiscal 2013, the average cash cost per ounce was approximately $1,346. This is a non-GAAP measurement, see page 4 for reconciliation.
James T. O'Neil Jr., CEO and Interim CFO of Gryphon Gold, commented, "We have continued to make progress in advancing the Borealis Property; however, necessary construction interruptions related to expansion efforts, unforeseen equipment difficulties at the Adsorption Desorption Recovery ("ADR") refining facility and inclement weather typical of this time of the year impacted our production and corresponding sales for the quarter."
Mr. O'Neil Jr. continued, "As we had previously noted, our capital was severely strained and, as a result, our Board of Directors reviewed a number of options with the objective to strengthen our financial position. The joint venture that was announced with Waterton at the end of January not only improved our balance sheet and our working capital, it also brought an ideal partner with extensive technical and operational expertise that we believe will be critical to maintain the initiatives currently underway, and advance the property to a level greater than previously thought, including stronger recovery rates and a longer mine life."
Joint Venture Agreement with Waterton Global Value L.P.
On January 31, 2013, Gryphon Gold entered into multiple agreements with Waterton Global Value L.P. ("Waterton") and a subsidiary of Waterton, forming a joint venture with Gryphon's subsidiary, Borealis Mining Company ("Borealis"). Under terms of the agreement, Waterton converted $17.0 million, or approximately two-thirds of amounts due under its Senior Credit Facility with Gryphon Gold for a 60% ownership interest in Borealis. Gryphon Gold will own a 40% interest in Borealis and the amount due under the Senior Credit Facility will be reduced to $8.0 million, which is to be repaid in monthly installments commencing on January 31, 2013 through the end of the term in November 2014. The reduction of the amount outstanding under the facility will reduce the Company's monthly debt payments by approximately $1.0 million to $0.4 million.
Additionally, Gryphon Gold and Waterton entered into an operating agreement which will govern the operational and financial obligations of both parties with respect to the joint venture.
Third Quarter Fiscal 2013 Results
Operating expenses of $0.7 million for the third quarter were consistent with the prior-year period and the trailing second quarter. A decrease in employee related costs for the quarter were offset by increased asset retirement obligations due to the expansion of the heap leach pad and higher legal and audit fees. The Company realized a loss from operations of $1.3 million and $0.7 million for the third quarter of fiscal 2013 and 2012, respectively.
Interest expense, net of capitalized interest, was $0.5 million for the quarter, up from $0.4 million in the prior-year period for interest payments made on promissory and convertible notes issued to reduce potential future royalty obligations and debt incurred since April 2011.
For the third quarter of fiscal 2013, the Company had a net loss of $1.8 million, or $0.01 per diluted share, compared with a net loss of $1.2 million, or $0.01 per diluted share, for the same period of the prior year.
Liquidity Position
At December 31, 2012, the Company had cash on hand of $0.6 million, relatively consistent with the cash balance at March 31, 2012, but down significantly from the $4.5 million cash balance at September 30, 2012. The change in cash from the second quarter reflects ongoing operational investments to expand production capacity at the Borealis Property.
At December 31, 2012, the Company had $6.1 million of inventory. Additional current assets at the end of the third quarter included $0.1 million in accounts receivable, $0.7 million in prepaid expenses and $0.5 million in deferred debt costs.
Nine-Month Summary
Revenue for the nine-month period ending December 31, 2012 was $12.6 million on sales of 7,989 gold equivalent ounces compared with revenue of $0.9 million for the first nine months of fiscal 2012. The Company produced 7,709 gold equivalent ounces at a recovery rate of approximately 40%.
Operating expenses for the first nine months of fiscal year 2013 were $2.1 million, an increase of $0.2 million over the first nine months of fiscal year 2012, which reflects higher legal and audit fees associated with royalty negotiations, the senior credit facility and increased reporting associated with production.
Interest expense increased $1.3 million to $1.8 million from $0.5 million in the first nine months of fiscal 2012, due to the interest incurred on promissory and convertible notes issued to reduce the potential future obligations under the royalty liability and the credit facility. The Company also recognized a gain of $0.8 million in the nine-month period ending December 31, 2012 for the change in liability warrants issued in Canadian dollars.
Year-to-date fiscal 2013 net loss was $3.2 million compared with a net loss of $2.5 million in the prior-year period.
Focused on Expanding Production Capacity
The Company's strategy is to facilitate an increase in production volume and sales at Borealis to create operational leverage which will reduce cash costs per ounce and improve the recovery rate, as well as generate sufficient cash to invest in further exploration and development.
"While we experienced a setback with the failure of the ADR facility's boiler, we were able to quickly find a replacement and Borealis has begun pouring gold again," stated Donald B. Tschabrun, Chief Operating Officer of Borealis Mining Company LLC. "With production resuming and having Waterton onboard, we have shifted our focus back to investments aimed at expanding Borealis' production capacity including additional crushing capabilities and hauling equipment."
Third Quarter Fiscal 2013 Conference Call and Webcast
The Company will host a conference call and webcast to discuss its results, progress in advancing the Borealis Property and its recent joint venture agreement on Friday, February 15, 2013 at 1:00 p.m. ET. The teleconference call can be accessed by calling (201) 689-8560. The webcast can be found on the Company's website at www.gryphongold.com.
A telephonic replay will be available from 4:00 p.m. ET the day of the teleconference until Friday, February 22, 2013. To listen to a replay of the call, dial (858) 384-5517 and enter replay pin number 407895. An archive of the webcast will be available on the Company's website, along with a transcript, once available.
ABOUT GRYPHON GOLD:
Gryphon Gold holds a 40% joint venture interest in the gold producing Borealis Property, which is located in Nevada's Walker Lane Gold Belt. The Company and its joint venture partner Waterton Global Value L.P. are expanding the Borealis Property production capacity and advancing the development of the oxide heap leachable gold and silver historically identified that includes both pre-processed and unprocessed ore. The Borealis Property contains unpatented mining claims (including claims leased to the Company's wholly owned subsidiary) of approximately 20 acres each, totaling about 15,020 acres, which has successful past production.
Gryphon Gold routinely posts news and other important information on its website: www.gryphongold.com.
Safe Harbor Statement: This press release contains "forward-looking statements" and "forward-looking information" within the meaning of United States and Canadian securities laws, which may include, but are not limited to, statements relating to projected production rates, expected capital contribution, and plans to advance the development of the Borealis Property. Such forward-looking statements and forward-looking information reflect our current views with respect to future events and are subject to certain risks, uncertainties and assumptions, including risks associated with the possible dilution of Gryphon's interest in Borealis if it is unable to meet its capital contribution or loan repayment obligations, risks associated with mining operations, risks associated with the installation and operation of new equipment, risks associated with the reduction in revenue from operations for the periods referred to in this release; risks associated with Gryphon's limited capital resources, risks associated with the oxide heap, risks associated with exploration, metallurgical design and project permitting and development and the risks and uncertainties outlined under the section headings "Forward-Looking Statements" and "Risks Factors and Uncertainties" in the Annual and Quarterly Reports, as filed with the SEC and Canadian securities administrators and in the Company's other reports, documents, and registration statements filed with the SEC (available at www.sec.gov) and with Canadian securities administrators (available at www.sedar.com). Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, believed, estimated or expected. The Company does not undertake to update forward-looking statements or forward-looking information, except as may be required by law. Full financial statements and securities filings are available on the Company's website: www.gryphongold.com and www.sec.gov or www.sedar.com.
FINANCIAL TABLES FOLLOW.
Non-GAAP Measures
Cash costs per ounce of gold represent non-U.S. Generally Accepted Accounting Principles ("GAAP") measurements that the Company believes provide management and investors an indication of net cash flow. Management also uses this measurement for the comparative monitoring of performance of mining operations period-to-period from a cash flow perspective. Cash cost per ounce is a measure developed by gold companies in an effort to provide a comparable standard; however, there can be no assurance that our reporting of this non-GAAP measure is similar to that reported by other mining companies. Cost of sales and other direct production costs was the most comparable financial measures calculated in accordance with GAAP to total cash costs.
Gryphon Gold Corporation
Cash Cost Per Ounce Reconciliation
(Unaudited)
(Stated in U.S. dollars)
Three months ended Nine months ended
December 31, 2012
Cost of sales $ 2,141,627 $ 11,576,597
Impairment on inventory - (323,570)
Royalties (165,574) (659,272)
Inventory change 515,994 (214,198)
----------------------------------------------------------------------------
Production cash costs $ 2,492,047 $ 10,379,557
Gold equivalent ounces produced 1,929 7,709
----------------------------------------------------------------------------
Cash cost per ounce $ 1,292 $ 1,346
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Gryphon Gold Corporation
Consolidated Balance Sheets
(Unaudited)
(Stated in U.S. dollars)
December 31, 2012 March 31, 2012
----------------------------------
ASSETS
Current assets:
Cash $ 576,038 $ 602,343
Accounts receivable 107,777 358,005
Prepaid expenses 715,377 171,515
Inventories 6,113,735 6,363,016
Deferred debt issue costs 477,546 312,549
----------------------------------
7,990,473 7,807,428
Property, plant and equipment, net 31,477,227 19,565,395
Reclamation bonds and deposits 3,741,418 2,839,559
----------------------------------
$ 43,209,118 $ 30,212,382
----------------------------------
----------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 5,243,004 $ 583,458
Accounts payable and accrued liabilities 4,884,010 5,004,298
Note payable - 1,376,479
----------------------------------
10,127,014 6,964,235
Long-term debt, net of discount and
current portion 20,611,574 10,198,611
Asset retirement obligation 3,814,005 1,675,877
Warrant derivative liabilities 375,214 137,291
----------------------------------
34,927,807 18,976,014
----------------------------------
Stockholders' equity:
Common stock 194,644 194,103
Additional paid in capital 54,355,144 54,114,438
Accumulated deficit (46,268,477) (43,072,173)
----------------------------------
8,281,311 11,236,368
----------------------------------
$ 43,209,118 $ 30,212,382
----------------------------------
----------------------------------
Gryphon Gold Corporation
Consolidated Statement of Operations
(Unaudited)
(Stated in U.S. dollars)
Three months ended Nine months ended
December 31, December 31,
----------------------------------------------------
2012 2011 2012 2011
----------------------------------------------------
Net Sales $ 3,215,242 $ 931,794 $ 12,608,898 $ 931,794
Cost of sales and other
direct production costs 3,547,914 930,399 11,576,597 930,219
Depreciation 264,648 41,498 1,022,683 41,678
----------------------------------------------------
Gross profit (loss) (597,320) (40,103) 9,618 (40,103)
----------------------------------------------------
Operating expenses:
Exploration (refund) 15,111 (26,394) 43,313 68,860
Salaries and consulting
fees 231,246 364,297 757,124 836,465
General and
administrative 180,705 152,554 552,261 527,164
Legal and audit 108,438 62,202 483,449 203,202
Travel and
accommodation 26,300 66,328 91,864 159,589
Depreciation 7,143 17,714 20,616 35,176
Write down of mining
property - - 11,003 -
Loss on disposal of
equipment 3,347 - 2,917 -
Asset retirement
obligation accretion 81,095 10,284 189,817 27,280
----------------------------------------------------
653,385 646,985 2,152,363 1,857,736
----------------------------------------------------
Loss from operations (1,250,705) (687,088) (2,142,745) (1,897,839)
Other (income) expense:
Loss (gain) on foreign
exchange (1,146) 94,653 49,718 189,449
Gain on warrant
derivative liability (9,288) - (801,643) -
Interest income (122) (7,926) (3,773) (11,153)
Interest expense, net
of capitalized
interest 512,428 381,212 1,809,257 466,814
----------------------------------------------------
Net loss $(1,752,577) $(1,155,027) $(3,196,304) $(2,542,949)
----------------------------------------------------
----------------------------------------------------
Basic and diluted net
income (loss) per share $ (0.01) $ (0.01) $ (0.02) $ (0.01)
----------------------------------------------------
----------------------------------------------------
Weighted shares used in
calculating basic and
diluted net income
(loss) per share 194,644,091 193,992,040 194,644,091 177,175,447
----------------------------------------------------
----------------------------------------------------
Gryphon Gold Corporation
Consolidated Statements of Cash Flows
(Unaudited)
(Stated in U.S. dollars)
Nine months ended
December 31,
-----------------------------------
2012 2011
----------------- -----------------
Operating activities:
Net cash used by operating activities $ (3,583,513) $ (4,790,874)
Investing activities:
Reclamation bonds purchased (901,859) (2,033,500)
Purchase of property, plant and
equipment (3,460,450) (8,732,729)
Proceeds from sale of equipment 1,000 -
Mineral property expenditures - (248,203)
Option payment to amend and reduce
royalty - (175,000)
Proceeds from note receivable - 2,975
----------------- -----------------
Net cash used in investing activities (4,361,309) (11,186,457)
----------------- -----------------
Financing activities:
Repayment of borrowings (2,271,761) (46,693)
Proceeds from borrowings, net 10,290,095 7,480,676
Shares and warrants issued for cash - 11,134,317
Public offering costs - (1,198,621)
Debt and share issue costs (100,535) (829,587)
----------------- -----------------
Net cash provided in financing activities 7,917,799 16,540,092
----------------- -----------------
Effect of foreign exchange on cash 718 (20,141)
Net increase (decrease) in cash (26,305) 542,620
Cash, beginning of year 602,343 837,457
----------------- -----------------
Cash, end of period $ 576,038 $ 1,380,077
----------------- -----------------
----------------- -----------------
Reconciliation of net loss to net cash
used by operating activities:
Net loss $ (3,196,304) $ (2,542,949)
Adjustments to reconcile net loss to net
cash used by operating activities:
Interest expense paid with debt 149,229 -
Depreciation 1,043,299 76,854
Asset retirement obligation accretion 189,817 27,280
Loss on disposal of equipment 2,917 -
Stock compensation expense, net of tax 229,997 181,041
Common stock issued for services
provided 11,250 -
Amortization of debt offering costs 515,538 199,947
Amortization of notes payable discount 465,314 199,877
Unrealized gain (loss) on foreign
exchange (718) 20,141
Impairment of inventory 323,570 -
Write down of mining property 11,003 -
Gain on warrant derivative liability (801,643) -
Other changes in operating assets and
liabilities:
Accounts receivable (73,342) (497,977)
Accounts payable and accrued
liabilities (2,056,597) 1,239,602
Inventories 147,019 (3,537,564)
Prepaid expenses (543,862) (157,126)
----------------- -----------------
$ (3,583,513) $ (4,790,874)
----------------- -----------------
----------------- -----------------
Contacts:
Gryphon Gold Corporation - Company
James T. O'Neil Jr., CEO and Interim CFO
(775) 883-1456
joneil@gryphongold.com
www.gryphongold.com
Kei Advisors LLC
Deborah K. Pawlowski
Investor Relations
(716) 843-3908
dpawlowski@keiadvisors.com